In exercise of the powers conferred by
clause (e) of sub-section (3) of Section 6, subsection (2) of Section
47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve
Bank of India makes the regulations relating to borrowing and lending
in rupees between a person resident in India and a person resident outside
India as under, namely:

1.

Short title and commencement:-

(1)

These Regulations may be called the Foreign
Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000.

(2)

They shall come into force on 1st day of
June, 2000.

2.

Definitions:-

In these Regulations, unless the context
requires otherwise, -

a)

'Act' means the Foreign Exchange Management
Act, 1999 (42 of 1999);

b)

'authorised dealer', 'authorised bank',
'Non-resident Indian (NRI)', 'Person of Indian origin', 'Overseas Corporate
Body (OCB)', 'NRE account', 'NRO account', 'NRNR account', 'NRSR account',
and 'FCNR account' shall have the same meanings as assigned to them
respectively in Foreign Exchange Management (Deposits) Regulations,
2000 made by Reserve Bank under clause (f) of sub-section (3) of section
6 of the Act;

c)

'housing finance institution' and National
Housing Bank' shall have the meaning assigned to them in the National
Housing Bank Act, 1987 (53 of 1987);

d)

'Transferable Development Rights (TDR)'
shall have the meaning as assigned to it in the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2000.

e)

The words and expressions not defined in
these regulations but defined in the Act shall have the same meanings
respectively assigned to them in the Act.

3.

Prohibition on borrowing and lending in
rupees:-

Save as otherwise provided in the Act,
rules or regulations made thereunder, no person resident in India shall
borrow in rupees from, or lend in rupees to, a person resident outside
India.

Provided that the Reserve Bank may, for
sufficient reasons, permit a person resident in India to borrow in rupees
from, or lend in rupees to, a person resident outside India.

Explanation:

For the removal of doubt, it is clarified
that use of Credit Card in India by a person resident outside India
shall not be deemed as borrowing or lending in rupees.

4.

Borrowing in rupees by persons other than
companies in India:-

A person resident in India, not being a
company incorporated in India, may borrow in rupees on non-repatriation
basis from a non-resident Indian or a person of Indian origin resident
outside India, subject to the following conditions:

(i)

the amount of loan shall be received by
way of inward remittance from outside India or out of Non-resident External
(NRE)/Non-resident Ordinary (NRO)/Foreign Currency Non-resident (FCNR)/Non-resident
Non-repatriable (NRNR)/Non-resident Special Rupee (NRSR) account of
the lender maintained with an authorised dealer or an authorised bank
in India,

(ii)

the period of loan shall not exceed three
years;

(iii)

the rate of interest on the loan shall
not exceed two percentage points over the Bank rate prevailing on the
date of availment of loan;

(iv)

where the loan is made out of funds held
in Non-resident Special Rupee (NRSR) account of the lender, payment
of interest and repayment of loan shall be made by credit to that account;
and in other cases, payment of interest and repayment of loan shall
be made by credit to the lender's Non-resident Ordinary (NRO) or Non-resident
Special Rupee (NRSR) account as desired by the lender; and

(v)

the amount borrowed shall not be allowed
to be repatriated outside India.

5.

Borrowing in rupees by Indian companies:-

(1)

Subject to the provisions of sub-regulations
(2) and (3), a company incorporated in India may borrow in rupees on
repatriation or non- repatriation basis, from a nonresident Indian or
a person of Indian origin resident outside India or an overseas corporate
body (OCB), by way of investment in Non-convertible Debentures (NCDs)
subject to the following conditions;

i)

the issue of Non-convertible Debentures
(NCDs) is made by public offer;

ii)

the rate of interest on such Non-convertible
Debentures (NCDs) does not exceed the prime lending rate of the State
Bank of India as on the date on which the resolution approving the issue
is passed in the borrowing company's General Body Meeting, plus 300
basis points,

iii)

the period for redemption of such Non-convertible
Debentures (NCDs) is not be less than three years;

iv)

the borrowing company does not and shall
not carry on agricultural /plantation /real estate business/Trading
in Transferable Development Rights (TDRs) or does not and shall not
act as Nidhi or Chit Fund company;

v)

the borrowing company files with the nearest
office of the Reserve Bank, not later than 30 days from the date -

(A)

of receipt of remittance for investment
in Non-convertible Debentures (NCDs), full details of the remittances
received, namely; (a) a list containing names and addresses of Nonresident
Indians (NRIs)/Overseas Corporate Bodies (OCBs) who have remitted funds
for investment in Non-convertible Debentures (NCDs) on repatriation
and/or non-repatriation basis, (b) amount and date of receipt of remittance
and its rupee equivalent; and (c) names and addresses of authorised
dealers through whom the remittance has been received;

(B)

of issue of Non-convertible Debentures
(NCDs), full details of the investment, namely; (a) a list containing
names and addresses of Non-resident Indians (NRIs)/Overseas Corporate
Bodies (OCBs) and number of Non-convertible Debentures (NCDs) issued
to each of them on repatriation and/or non-repatriation basis and (b)
a certificate from the Company Secretary of the borrowing company that
all provisions of the Act, rules and regulations in regard to issue
of Non-convertible Debentures (NCDs) have been duly complied with.

(2)

The borrowing by issue of non-convertible
debentures on repatriation basis shall be subject to the following additional
conditions, namely:

(a)

the percentage of Non-convertible Debentures
(NCDs) issued to Nonresident Indians (NRIs)/Overseas Corporate Bodies
(OCBs) to the total paid-up value of each series of Non-convertible
Debentures (NCDs) issued shall not exceed the ceiling prescribed for
issue of equity shares/ convertible debentures for foreign direct investment
in India as specified by the Reserve Bank from time to time, under the
relevant regulations, and

(b)

the amount of investment is received by
remittance from outside India through normal banking channels or by
transfer of funds held in the investor's Non-resident External (NRE)/Foreign
Currency Non-resident (FCNR) account maintained with an authorised dealer
or an authorised bank in India;

(3)

The borrowing by issue of non-convertible
debentures (NCDs) on non-repatriation basis shall be subject to the
following additional conditions, namely:

a)

he amount of investment is received either
by remittance from outside India through normal banking channels or
by transfer of funds held in the investor's Non-resident External (NRE)/Non-resident
Ordinary (NRO)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable
(NRNR)/Non-resident Special Rupee (NRSR) account maintained with an
authorised dealer or an authorised bank in India ,

b)

here the investment is made out of funds
held in Non-resident Special Rupee (NRSR) account, the interest on such
Non-convertible Debentures (NCDs) shall also not be repatriable outside
India; and the maturity proceeds and interest on such debentures are
credited only to the Non-resident Special Rupee (NRSR) account of the
investor.

6.

Restriction on use of borrowed funds:-

No person resident in India who has borrowed
in rupees from a person resident outside India,-

(1)

shall use such borrowed funds for any purpose
except in his own business other than -

(i)

the business of chit fund, or

(ii)

as Nidhi Company , or

(iii)

gricultural or plantation activities or
real estate business; or construction of farm houses or

(iv)

rading in Transferable Development Rights
(TDRs).

(2)

shall use such borrowed funds for any investment,
whether by way of capital or otherwise, in any company or partnership
firm or proprietorship concern or any entity, whether incorporated or
not, or for relending.

Explanation:

For the purpose of sub-clause (iii) of
clause (1), real estate business shall not include development of townships,
construction of residential/ commercial premises, roads or bridges.

7.

Loans in rupees to non-residents against
security of shares or immovable property in India :-

Subject to the directions issued by the
Reserve Bank from time to time in this regard, an authorised dealer
in India may grant loan to a non-resident Indian,

A)

against the security of shares or other
securities held in the name of the borrower, or

B)

against the security of immovable property
(other than agricultural or plantation property or farm house), held
by him in accordance with the Foreign Exchange Management (Acquisition
and transfer of immovable property in India) Regulations, 2000:

Provided that

a)

the loan shall be utilised for meeting
the borrower's personal requirements or for his own business purposes;
and

b)

the loan shall not be utilised, either
singly or in association with other person, for any of the activities
in which investment by persons resident outside India is prohibited,
namely;

(i)

the business of chit fund, or

(ii)

Nidhi Company , or

(iii)

agricultural or plantation activities or
in real estate business, or construction of farm houses; or

(iv)

trading in Transferable Development Rights
(TDRs).

Explanation:

For the purpose of item (iii) of proviso,
real estate business shall not include development of townships, construction
of residential/ commercial premises, roads or bridges.

repayment of loan shall be made from out
of remittances from outside India through normal banking channels or
by debit to the Non-resident Ordinary (NRO)/Non-resident Special Rupee
(NRSR)/Non-resident Non-repatriable (NRNR)/Non-resident External (NRE)/Foreign
Currency Non-resident (FCNR) account of the borrower or out of the sale
proceeds of the shares or securities or immovable property against which
such loan was granted.

8.

Providing housing loan in rupees to a non-resident
:-

An authorised dealer or a housing finance
institution in India approved by the National Housing Bank may provide
housing loan to a non-resident Indian or a person of Indian origin resident
outside India, for acquisition of a residential accommodation in India,
subject to the following conditions, namely:

a)

the quantum of loans, margin money and
the period of repayment shall be at par with those applicable to housing
finance provided to a person resident in India;

the loan shall be fully secured by equitable
mortgage of the property proposed to be acquired, and if necessary,
also by lien on the borrower's other assets in India;

d)

the instalment of loan, interest and other
charges, if any, shall be paid by the borrower by remittances from outside
India through normal banking channels or out of funds in his Non-resident
External (NRE)/Foreign Currency Non-resident(FCNR)/Non-resident Non-repatriable
(NRNR)/ Non-resident Ordinary

(NRO)/ Non-resident Special Rupee (NRSR)
account in India, or out of rental income derived from renting out the
property acquired by utilisation of the loan;

e)

the rate of interest on the loan shall
conform to the directives issued by the Reserve Bank or, as the case
may be, by the National Housing Bank.

An authorised dealer or, as the case may
be, an authorised bank, may allow continuance of loan/overdraft granted
to a person resident in India who subsequently becomes a person resident
outside India, subject to following terms and conditions:

a)

the authorised dealer or the authorised
bank is satisfied, according to his/its commercial judgement, about
the reasons to continue the loan or overdraft;

b)

the period of loan or overdraft shall not
exceed the period originally fixed at the time of granting the loan
or overdraft;

c)

so long as the borrower continues to remain
a person resident outside India, the repayment shall be made either
by inward remittance from outside India through normal banking channels
or from the funds held in Non-resident External (NRE)/Foreign Currency
Non-resident(FCNR)/Non-resident Non-repatriable (NRNR)/ Non-resident
Ordinary (NRO)/ Non-resident Special Rupee (NRSR) account of the borrower.

10.

Continuance of rupee loan in the event
of change in the residential status of the lender :-

In case a rupee loan was granted by a person
resident in India to another person resident in India and the lender
subsequently becomes a non-resident, the repayment of the loan by the
resident borrower should be made by credit to the Non-resident Ordinary
(NRO) or Non-resident Special Rupee (NRSR) account of the lender maintained
with a bank in India, at the option of the lender.

11.

Overdraft in rupee account maintained with
authorised dealer in India by a bank outside India :-

An authorised dealer may permit a temporary
overdraft, for value not exceeding Rs five hundred lakhs, in rupee accounts
maintained with him by his overseas branch or correspondent or Head
Office outside India, subject to such terms and conditions as the Reserve
Bank may direct from time to time.

Explanation:

For the purpose of calculating the ceiling
of Rupees five hundred lakhs under this Regulation, the aggregate amount
of overdrafts permitted by the authorised dealer to all his branches,
correspondents and Head Office outside India outstanding in the books
of all his branches in India, shall be taken into account.

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